Insured Estate

<div class="Section1"><br /> <br /> If the income beneficiary, as the insured&rsquo;s surviving spouse, is given a &ldquo;qualifying income interest for life&rdquo; in the trust, the trust corpus (or the specific portion thereof in which the income beneficiary has the income interest) will be includable in the income beneficiary&rsquo;s estate if the marital deduction election is made, whether or not the income beneficiary is given a power to invade the corpus of the trust.<a href="#_ftn1" name="_ftnref1">¹</a> If the income beneficiary&rsquo;s interest is not a &ldquo;qualifying income interest for life&rdquo; in the trust, if the power is deemed a general power of appointment within the meaning of IRC Section 2041, and if the income beneficiary either (1) possessed the power at death or (2) exercised or released the power during life by a disposition of such a nature that if it were a transfer of property, the property would be includable in the income beneficiary&rsquo;s estate under any of IRC Sections 2035-2038, the value of the trust assets will be includable in the income beneficiary&rsquo;s gross estate.<br /> <br /> In the case of a power created on or before October 21, 1942, property subject to the power would be includable in the income beneficiary&rsquo;s estate under IRC Section 2041 only if the income beneficiary exercised the power by will or as in (2) above.<a href="#_ftn2" name="_ftnref2">²</a> The lapse of a power during the power holder&rsquo;s lifetime is considered a release of such power (as in (2) above), but only to the extent that property that could have been appointed by exercise of the powers that lapsed in any calendar year exceeded in value at the time of the lapse the greater of (a) $5,000, or<br /> (b) 5 percent of the value of the assets over which the lapsed powers existed ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="205">205</a>).<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="Section1"><br /> <br /> Subject to the exceptions noted below, the income beneficiary would be deemed to hold a general power of appointment if the income beneficiary had the power to invade the trust corpus for his or her benefit or for the benefit of his or her estate, creditors, or estate creditors. The following powers would <em>not</em> be deemed general powers of appointment for purposes of IRC Section 2041 if possessed by the income beneficiary:<br /> <ol><br /> <li>A power to invade the corpus for the income beneficiary&rsquo;s benefit if the power is limited by an &ldquo;ascertainable standard&rdquo; relating to the income beneficiary&rsquo;s &ldquo;health, education, support, or maintenance.&rdquo;</li><br /> <li>A power of appointment created on or before October 21, 1942, which is exercisable by the income beneficiary only in conjunction with another person.</li><br /> <li>A power of appointment created after October 21, 1942, which is exercisable by the income beneficiary only in conjunction with the creator of the power or with a person having a substantial interest in the property subject to the power adverse to exercise of the power in favor of the income beneficiary.<a href="#_ftn4" name="_ftnref4">⁴</a></li><br /> </ol><br /> Five percent of a family trust (as well as 100 percent of a marital trust) was includable in the surviving spouse&rsquo;s estate where the surviving spouse held a power of withdrawal over all of the marital trust and a contingent power to withdraw 5 percent annually from the family trust if the marital trust was exhausted.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> In the past, through a number of letter rulings, the IRS determined that a beneficiary who has the power to remove a trustee will be treated as holding any powers held by the trustee for purposes of determining whether the beneficiary holds a general power of appointment.<a href="#_ftn6" name="_ftnref6">⁶</a> However, for purposes of IRC Sections 2036 or 2038, the IRS no longer includes trust property in a decedent grantor&rsquo;s estate where the grantor retains the right to replace the trustee but can replace the trustee with only an independent corporate trustee.<a href="#_ftn7" name="_ftnref7">⁷</a> More recently, the power to remove a trustee and replace the trustee with an independent corporate trustee was not treated as the retention of powers held by the trustee for purposes of IRC Section 2041.<a href="#_ftn8" name="_ftnref8">⁸</a> This may represent an extension by the IRS of its policy with regard to trustee removal under IRC Sections 2036 and 2038 to IRC Section 2041. Similarly, a beneficiary&rsquo;s right to veto a replacement trustee and to petition a court for appointment of an independent replacement trustee was not treated as a general power of appointment.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> <em>See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="186">186</a> regarding the reciprocal trust doctrine.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2044.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2041(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2041(b)(2).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; IRC &sect;&nbsp;2041(b)(1).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Kurz v. Commissioner</em>, 68 F.3d 1027, 95-2 USTC (CCH) &para;&nbsp;60, 215, 76 A.F.T.R.2d (RIA) 7309 (7th Cir. 1995).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Ruls. 8916032, 9113026 (does not apply to transfers in trust before October 29, 1979, if trust was irrevocable on October 28, 1979).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 95-58, 1995-2 CB 191; <em>Estate of Wall v. Commissioner</em>, 101 TC 300 (1993).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 9607008.<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 9741009.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Assume there are two insureds, A and B, each of whom wishes to create funded life insurance trusts for the same beneficiaries, with each retaining certain life interests in the property transferred. Each realizes that the retention of such interests will cause the value of the property each transfers to be included in his or her gross estate ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="182">182</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="183">183</a>). They reason that if they give these interests to the <em>other</em>, there should be no basis for includability of the trust assets in their own estates, assuming the trusts are irrevocable.<br /> <br /> The reciprocal trust doctrine, developed by the courts, prevents this estate tax result. If the parties were to go ahead with their plan, the doctrine would be applied so as to &ldquo;uncross&rdquo; the trusts. For estate tax purposes, A would be treated as grantor of the trusts in form created by B, and vice versa. The doctrine is applied when trusts are interrelated and the arrangement, to the extent of mutual value, leaves the grantors in approximately the same economic position in which they would have been had each retained life interests in the trusts the grantor in form created. There is no need to find that the trusts were exchanged in &ldquo;payment&rdquo; for each other, nor that there was a specific &ldquo;tax avoidance&rdquo; motive involved in their creation.<a href="#_ftn1" name="_ftnref1">¹</a> The U.S. Court of Appeals for the Sixth Circuit and the Tax Court, in split decisions, have held that application of the reciprocal trust doctrine does not require that the grantors have crossed <em>economic</em> interests in the trusts they have created.<a href="#_ftn2" name="_ftnref2">²</a> The U.S. Court of Appeals for the Federal Circuit appears to concur with the Tax Court in this view. The reciprocal trust doctrine also has been applied to uncross transfers of assets in custodianship under the Uniform Gifts to Minors Act.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> A letter ruling uncrossed reciprocal discretionary distribution rights given to trustees where each trustee was given a discretionary power to make distributions to the other trustee. Consequently, the decedent in this letter ruling was treated as holding a general power to appoint trust corpus to himself and the corpus was included in his estate.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>U.S. v. Grace</em>, 395 U.S. 316 (1969). <em>See also Estate of Moreno v. Commissioner</em>, 260 F.2d 389 (8th Cir. 1958).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Green v. U.S.</em>, 68 F.3d 151, 95-2 USTC &para;&nbsp;60,216 (6th Cir. 1995); <em>Estate of Bischoff v. Commissioner</em>, 69 TC 32 (1977).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Exchange Bank &amp; Trust Co. of Fla. v. U.S.</em>, 694 F. 2d 1261, 82-2 USTC &para;&nbsp;13,505 (Fed. Cir. 1982).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 9235025.<br /> <br /> </div></div><br />

<div class="Section1">It should not be includable in the grantor's estate if, generally, (1) the trust is irrevocable and the grantor has retained no power to alter or amend, (2) the grantor has retained no interest or control over enjoyment of the property or income, and (3) the grantor does not have a reversionary interest in excess of 5 percent.<a href="#_ftn1" name="_ftnref1">¹</a> If the grantor retains power to withdraw and surrender policies placed in the trust, the funding property may be includable in the grantor's gross estate.<a href="#_ftn2" name="_ftnref2">²</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC §§ 2036, 2037, 2038; <em>First Nat'l Bank of Birmingham (Estate of Sanson) v. Commissioner</em>, 36 BTA 651 (1937), acq. 1937-2 CB 24; <em>Estate of Carlton v. Commissioner</em>, 34 TC 988 (1960), nonacq. 1964-1 CB 9; Rev. Rul. 81-164, 1981-1 CB 458.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     Treas. Reg. § 20.2042-1(c)(4); <em>Estate of Resch v. Commissioner</em>, 20 TC 171 (1953), acq. 1953-2 CB 6.<br /> <br /> </div>

<div class="Section1"><br /> <br /> If a life income beneficiary is the owner of insurance policies payable to a life insurance trust at the time of the insured's death and the life income beneficiary is still the beneficiary at the time of death, an amount equal to the death proceeds will be includable in the life beneficiary's estate under IRC Section 2036(a)(1) as a transfer of the proceeds with a life income interest retained.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> In one case, an insured husband created a nonfunded revocable life insurance trust under which his wife was the life income beneficiary and the wife paid premiums out of her own funds. The court held that on the death of the wife, who died after the husband, the premium payments were not considered transfers, and the proceeds therefore were not includable in her estate under IRC Section 2036(a)(1).<a href="#_ftn2" name="_ftnref2">²</a> However, when a trust is irrevocable, there is a possibility that payment of premiums by the income beneficiary may cause the income beneficiary to be considered a co-grantor of the trust. Thus, the income beneficiary may be considered to have made a transfer with a retained income interest. This would cause the portion of the proceeds attributable to such premiums to be includable in the income beneficiary's estate upon the income beneficiary's subsequent death.<a href="#_ftn3" name="_ftnref3">³</a> Trust beneficiaries would not hold incidents of ownership in life insurance under IRC Section 2042 where (1) a beneficiary could not make contributions to a trust that might hold life insurance on the beneficiary's life and (2) a beneficiary's limited power of appointment could not be exercised if the trust held life insurance on the beneficiary's life.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Rev. Rul. 81-166, 1981-1 CB 477.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.     <em>Goodnow v. U.S.</em>, 302 F.2d 516, 157 Ct. Cl. 526 (Fed. Cir. 1962).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.     IRC § 2036(a)(1).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.     Let. Rul. 9602010.<br /> <br /> </div>

<div class="Section1">No. A policy loan is considered an advancement of part of the policy proceeds, not an enforceable claim against the estate.<a href="#_ftn1" name="_ftnref1">¹</a> Only the excess of the proceeds over the amount of the policy loan is includable in the gross estate.</div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Treas. Reg. §§ 20.2042-1(a)(3), 20.2053-4; <em>Kennedy v. Commissioner</em>, 4 BTA 330 (1926).<br /> <br /> </div>

<div class="Section1"><br /> <br /> Yes.<br /> <br /> Life insurance proceeds are includable in the insured&rsquo;s estate if the trustee is <em>required</em> to use the proceeds to discharge estate obligations. The amount of proceeds required for payment of such debts and taxes is includable in the insured&rsquo;s gross estate, whether the proceeds actually are used for such purposes or not.<a href="#_ftn1" name="_ftnref1">¹</a> If the trustee&rsquo;s power is merely discretionary, however, and the trust is for the benefit of named individuals, the proceeds are includable in the insured&rsquo;s estate to the extent they are actually used for such purposes.<a href="#_ftn2" name="_ftnref2">²</a> (<em>See also</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="83">83</a>.)<br /> <br /> <hr><br /> <br /> <strong>Planning Point:</strong> Liquidity for an insured&rsquo;s estate can be aided by authorizing the trustee to lend proceeds to the estate or to use them to buy assets from the estate; such powers, if only discretionary, should not subject the proceeds to inclusion in the insured&rsquo;s estate.<br /> <br /> <hr><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect;&nbsp;20.2042-1(b)(1); <em>Hooper v. Commissioner</em>, 41 BTA 114 (1940), nonacq. in part at 1941-1 CB 7 (1940); <em>Pacific Nat&rsquo;l Bank of Seattle (Morgan Will) v. Commissioner</em>, 40 BTA 128 (1939); <em>Estate of Rohnert v. Commissioner</em>, 40 BTA 1319 (1939); <em>Estate of Logan v. Commissioner</em>, 23 BTA 236 (1931).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Wade v. Commissioner</em>, 47 BTA 21 (1942); <em>Old Colony Trust Co. (Flye&rsquo;s Estate) v. Commissioner</em>, 39 BTA 871 (1939), acq. 1939-2 CB 27.<br /> <br /> </div></div><br />

<div class="Section1">If the trust instrument provides that the trust will end on the grantor's death, the entire value of the property is includable in the grantor's gross estate. Otherwise, the grantor's reversionary interest is includable in the estate. The longer the trust term, the less will be the value of the reversion in the grantor's estate. This value is determined by use of the Estate and Gift Tax Tables found in Appendix D. If the gift of the income interest was a taxable gift, the amount of the gift, if not included in the gross estate, will be added to the taxable estate for purposes of computing the tentative estate tax. Nothing will be includable in the <em>beneficiary's</em> estate if the trust instrument provides for termination on the beneficiary's death. Otherwise, the value of the right to income will be includable. This value decreases as the trust term draws to a close.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     Treas. Reg. § 20.2031-7(d)(2)(ii).<br /> <br /> </div>

<div class="Section1"><br /> <br /> An assignment of group term life insurance made within three years before the death of the insured will cause the proceeds to be included in the insured&rsquo;s gross estate under IRC Section 2035 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="96">96</a>).<a href="#_ftn1" name="_ftnref1">¹</a> It has been held that where a prospective insured applied for group coverage and had ownership of the certificate placed in another, the prospective insured made a transfer of the insurance within the meaning of IRC Section 2035.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Similarly, in <em>Levine v. U.S.</em>,<a href="#_ftn3" name="_ftnref3">³</a> where the decedent/insured&rsquo;s controlled corporation procured the insurance and where the insured had his wife sign as the applicant and the beneficiary (the insured died in 1978, within three years of the insurance purchase), the proceeds of the life insurance were includable in the decedent/insured&rsquo;s estate.<br /> <br /> The IRS has ruled that an annual renewal of group term insurance by mere payment of the renewal premium does not create a new agreement but merely continues the old agreement, and that, therefore, as to an employee who has assigned his or her coverage, renewal is not a new transfer of insurance coverage for purposes of IRC Section 2035. Therefore, if the insured has transferred the insured&rsquo;s coverage under such a plan more than three years before death, the death proceeds will not be brought back into the insured&rsquo;s estate under IRC Section 2035.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The IRS has also ruled that although (1) an employee cannot, by agreement with an assignee of the employee&rsquo;s life coverage, effectively assign life coverage that the employee may receive in the future furnished by a new insurance carrier, and (2) a change of insurance carrier necessitates a new assignment of an employee&rsquo;s coverage to the same assignee &ldquo;and the new arrangement is identical in all relevant aspects to the previous arrangement&rdquo; with the old carrier, the new assignment will not cause the proceeds to be includable in the employee&rsquo;s estate under IRC Section 2035 if the employee dies within three years after the new assignment, but more than three years after the first assignment.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> A later private ruling dealt with the assignment of the insured&rsquo;s rights in a group life policy that was later replaced by a policy virtually identical in all material respects with the prior policy, but issued by a different carrier. The new policy provided that an employee&rsquo;s irrevocable assignment of the employee&rsquo;s rights in the old policy would be effective to vest in the assignee the insured&rsquo;s rights under the new policy. No new assignment was made after issuance of the new policy. The IRS stated that if applicable local law would not recognize the provision in the new policy as constituting a valid assignment of rights in the new policy, the insured would be treated as the owner of the policy at the insured&rsquo;s death.<a href="#_ftn6" name="_ftnref6">⁶</a> The U.S. Court of Appeals for the Seventh Circuit held that the proceeds of a group life policy were includable in the decedent&rsquo;s gross estate where the insured died within three years of the issuance of a policy offered by the employer in exchange for an earlier group life insurance policy. In this case, the insured was required to execute a new assignment when the second policy was issued.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> Where the issuance of a life insurance policy to a trust created by the insured&rsquo;s children was treated as an exercise of the conversion rights under a group policy in which the insured had held incidents of ownership that the insured had not previously assigned and the insured died within three years of the conversion, the insured was considered to have transferred incidents of ownership in the policy within three years of death, and the proceeds were included in the insured&rsquo;s estate.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 8022025.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Kahn v. U.S.</em>, 349 F. Supp. 806 (N.D. Ga. 1972).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; 10 Cl. Ct. 135, 86-1 USTC &para;&nbsp;13,667 (Cl. Ct. 1986).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 82-13, 1982-1 CB 132.<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 80-289, 1980-2 CB 270, revoking Rev. Rul. 79-231.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 8230038.<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>American Nat&rsquo;l. Bank v. U.S.</em>, 832 F.2d 1032, 87-2 USTC &para;&nbsp;13,738 (7th Cir. 1987).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;&nbsp;&nbsp;&nbsp; Let. Rul. 9141007.<br /> <br /> </div></div><br />

<div class="Section1">Ordinarily, they are not.<a href="#_ftn1" name="_ftnref1">¹</a> The proceeds will be included in the insured&rsquo;s gross estate, however, if the insured retains any incident of ownership in the policy at the time of death, whether the ownership right is exercisable by the insured alone or only in conjunction with another person ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="81">81</a>).<a href="#_ftn2" name="_ftnref2">²</a> Even though the insured has assigned the policy to the trustee, the proceeds will be included in the insured&rsquo;s gross estate if, under the terms of the trust instrument, the insured has a right to the cash surrender values.<a href="#_ftn3" name="_ftnref3">³</a> The mere right to give investment advice, in the case of a funded trust, is not considered an incident of ownership in the policy.<a href="#_ftn4" name="_ftnref4">⁴</a> <em>See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="96">96</a> for tax results where the trust was established within three years of death, or the insured paid premiums within three years of death. For a discussion of whether the right to control payment of the proceeds when such right is held by the insured as trustee is an incident of ownership, <em>see</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="88">88</a>.<div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Crosley v. Commissioner</em>, 47 TC 310 (1966), acq. 1967-2 CB 2.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Treas. Reg. &sect;&nbsp;20.2042-1(c)(4); <em>Farwell v. U.S.</em>, 243 F.2d 373 (7th Cir. 1957); <em>In re Rhodes&rsquo; Estate</em>, 174 F.2d 584 (3d Cir. 1949); <em>Estate of Seward v. Commissioner</em>, 164 F.2d 434 (4th Cir. 1947).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>St. Louis Union Trust Co. (Orthwein) v. U.S.</em>, 262 F. Supp. 27 (E.D. Mo. 1966).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;&nbsp;&nbsp;&nbsp; <em>Estate of Mudge v. Commissioner</em>, 27 TC 188 (1956).<br /> <br /> </div></div><br />

<div class="Section1">Yes. The entire value of the proceeds is includable in the grantor's gross estate. If the grantor has funded the trust, the funding property is also includable.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.     IRC § 2038(a); Treas. Reg. § 20.2042-1(c)(4).<br /> <br /> </div>